It's getting harder each day for the Obama administration to maintain the illusion of progress in Middle East peacemaking. The UN human rights council's vote to condemn January's Israeli assault on Gaza, furiously rejected by the Israeli prime minister, Binyamin Netanyahu, at the weekend, was the latest blow to US efforts to kickstart negotiations on a two-state solution. Across the region, all the signs point not to reconciliation, but to renewed confrontation. As Washington talks about talks, the Arab world mutters ominously about the prospect of a third intifada.

George Mitchell, Barack Obama's special envoy, will keep up appearances by holding more meetings with Palestinian officials in Washington on Tuesday. Susan Rice, US ambassador to the UN, will visit Israel and the occupied territories this week. After his embarrassingly unproductive summit with Netanyahu and Mahmoud Abbas, the Palestinian president, in New York last month, Obama instructed his secretary of state, Hillary Clinton, right, to personally deliver a progress report by mid-October. They are expected to meet after Mitchell's latest talks. But what can she honestly tell him?

On the Palestinian side, as Clinton cannot fail to be aware, attitudes are hardening as high hopes engendered by Obama's promise of a brave new dawn fade. Abbas is probably politically weaker now than at any time since becoming president. Fatah officials admit his decision, under US pressure, to delay action on the Goldstone report on Irael's invasion of Gaza was disastrous. Although Abbas later reversed his position, his misjudgment was a gift for Hamas and other opponents, who argue he is out of touch and increasingly dismiss him as a "collaborator".

In a defiant television address, and during a rare visit to Jenin last week, Abbas denied the charges while appearing to distance himself from US mediation efforts. He called on Mitchell to enforce Washington's initial demand that Israel end all construction in Jewish settlements in the West Bank and East Jerusalem, a demand that was bluntly rejected by Netanyahu and has subsequently been de-emphasised by Obama. Abbas said recent clashes near the al-Aqsa mosque were a response to an Israeli effort to "erase the Arab and Muslim identity of Jerusalem". He suggested the Palestinians might increasingly look to the UN and other international bodies to advance their cause.

Egyptian efforts to reconcile the rival Palestinian factions appear, meanwhile, to have stalled, partly due to US meddling. Officials in Cairo say the signing of an outline co-operation agreement between Fatah and Hamas, due on 25 October, has been postponed indefinitely. One reason is the row over the Goldstone report. Another, according to the Israeli newspaper, Ha'aretz, was an American veto. It said Mitchell had told Egypt that the proposed deal would harm the peace process. His objection appears rooted in the US and Israel's ideological refusal to deal, however loosely, with Hamas.

Hardliners on both sides are exploiting the deepening stalemate to reiterate rejectionist "told-you-so" positions. In Damascus, the Hamas leader, Khaled Meshal, said it was time for all Arab states to renew their drive for the "liberation" of Palestine "from the sea to the river" (meaning the destruction of Israel). Avigdor Lieberman, the hawkish Israeli foreign minister, has taken to repeating his view that peace is years way.

More moderate figures, such as King Abdullah of Jordan, are expressing growing pessimism. "We're sliding back in to the darkness," he said in a recent published interview. "We are seeing problems in Jerusalem that will directly destabilise not only the relationship with Jordan ... but will also create a tinderbox that will have a major flashpoint throughout the Islamic world." Turkey, one of Israel's few friends in the Middle East, has also fallen out with Netanyahu over Gaza and related frustrations. From such gloomy trends arise the predictions of a third intifada, pitching new generations of Palestinian youth against the Israeli foe.

If Clinton is frank with Obama, she will tell him that Netanyahu, while insisting he is ready in theory to negotiate a two-state solution, is adopting an ever more inflexible line in practice. Addressing the Knesset last week, the Israeli leader completely ignored the settlements issue – a key US concern – and reasserted his demand that Palestinians must recognise Israel as a Jewish state if they want to have a state of their own. After Friday's vote in Geneva, he is now claiming that the UN wants nothing less than the "de-legitimisation" of Israel and is actively encouraging global terrorism. Even by Netanyahu's hyper-hawkish standards, these are extreme and confrontational positions.

There can be little doubt that Netanyahu's bullish confidence stems from the perception on the Israeli right that after a tense few months, he has "seen off" Obama and his naive peacemaking notions. US diplomats warn of a serious mistake. Obama is "a man of steel", a senior official said – he would not give up on Middle East peace. As Clinton prepares to deliver her "progress" report, and with the region sliding apparently inexorably towards renewed conflict, this bold assertion is about to be tested.